Sebastian Renner / Jann Lay / Michael Schleicher

The Effects of Energy Price Changes: Heterogeneous Welfare Impacts, Energy Poverty, and CO2 Emissions in Indonesia

GIGA Working Paper, No. 302, May 2017

Abstract
We study the welfare, energy poverty, and CO2 emission implications of energy price change scenarios in Indonesia. Our analysis extends previous analyses of energy price impacts at the household level in several ways. First, by employing a household energy demand system (QUAIDS), we are able to distinguish between first‐ and second‐order welfare effects over the income distribution. Our analysis shows considerable heterogeneity of welfare impacts. For gasoline and electricity, first‐order calculations overestimate welfare effects by 10 to 20 per cent for price changes between 20 and 50 per cent. Second, our results point to the ownership of energy‐processing durables as another source of impact heterogeneity. Poor households that own these goods may be hit particularly strongly by energy price increases. Third, we extend the welfare analysis beyond the money‐metric utility effects and look at energy poverty, which is understood as the absence of or imperfect access to reliable and clean modern energy services. Drawing on the estimated demand function, we find that price increases have substantial effects on energy poverty. Fourth, our analysis explicitly considers the emissions effects of energy price scenarios. We find that reduced household energy demand implies a substantial reduction in emissions. The analysis thus indicates that energy prices may serve as an effective mitigation instrument but also have important adverse welfare effects. The latter can, however, be mitigated by appropriate compensation policies.

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GIGA AutorInnen

Dr. Sebastian Renner

Research Fellow
Sprecher Forschungsteam

Sebastian Renner ist wissenschaftlicher Mitarbeiter an der Universität Göttingen und Research Fellow am GIGA German Institute of Global and Area Studies. Seine Forschungsinteressen liegen im Querschnittsbereich von Umwelt- und Entwicklungsfragen wie der Messung von Armut, der Verteilungswirkungen von Klimapolitik und der ökologisch-ökonomischen Zielkonflikte von wirtschaftlicher Entwicklung.

Apl. Prof. Dr. Jann Lay ist Leiter des GIGA Forschungsschwerpunkts 3 „Wachstum und Entwicklung“. Zudem ist er außerplanmäßiger Professor für Entwicklungsökonomie an der Georg-August-Universität Göttingen. Seine Forschung beschäftigt sich mit verschiedenen Aspekten wirtschaftlicher Entwicklung im Globalen Süden, insbesondere in Afrika, beispielsweise mit (informeller) Beschäftigung und Arbeitsmärkten, den Auswirkungen sogenannter „Land grabs“ sowie Energie- und Klimathemen.

Aktuelle Publikationen der AutorInnen

Daniel Neff / Cornelis W. Haasnoot / Kunal Sen / Sebastian Renner

The Social and Economic Situation of the Scheduled Tribes in India

in: Christopher Fleming / Matthew Manning (eds.), Routledge Handbook of Indigenous Wellbeing, London: Routledge, forthcoming

Sebastian Renner / Jann Lay / Michael Schleicher

The effects of energy price changes: heterogeneous welfare impacts and energy poverty in Indonesia

Environment and Development Economics, 24, 2019, 2, 180-200

Claudia Dislich / Elisabeth Hettig / Jan Salecker / Johannes Heinonen / Jann Lay / Katrin M. Meyer / Kerstin Wiegand / Suria Tarigan

Land-use change in oil palm dominated tropical landscapes: an agent-based model to explore ecological and socio-economic trade-offs

PLOS ONE, 2018

Insa Flachsbarth / Simone Schotte / Jann Lay / Alberto Garrido

Rural structural change, poverty and income distribution: evidence from Peru

The Journal of Economic Inequality, 16, 2018, 4, 631-653